 Think Tech-A-Way. Civil engagement lives here. It's a Thursday 3 o'clock. Welcome to Condo Insider. I've been very busy this last few days as our legislature's back in session. I would share with you that we had 29 bills introduced as we get a good count right now involving associations. When you take the companion bills, which means it's the same bill both in the House and the Senate, and you back out the 2017 bills, we're probably only dealing with 19 bills this year that are new and it'll be an exciting year, but they're very important, so I urge you all to follow what's going on to protect your association. You may have heard about the headlines recently. It was all over the news, TV, newspaper at all, where the developer for Ocean Point and some of those related properties out there was slammed with a potentially $20 million or more judgment with respect to what they sold to the owners out there in the Everside. So I've asked a very good friend of mine, very competent lawyer, Terry Beer to join me, who is pretty well known in the industry for fighting for the little guys, so welcome to the show again. Thank you for having me. I'm happy to be back. And just briefly remind everybody, your background in Hawaii and your firm and what you do. So we have kind of a, are we up to speed? Sure. Well, I've lived in Hawaii since I was a teenager. I went to Shamanad and UH Law School, and then I clerked for a year at the Hawaii Supreme Court, and then I was with a firm for many years until I went out on my own about five, six years ago. And in my career I mostly concentrated on doing insurance defense work, lots of condominium work, lots of construction defect work, and I'm also representing owners against associations, which makes me the black sheep of the industry. That's interesting because you originally, and during this tenure of yours, you did work for a firm, but I'm going to say specialized on the management side or the association side, the board of directors side. And then you left and you went into representing homeowners. And why did you do that? Frankly, I just saw a need. Once in a while we would do it at the old firm. I thought it was fun arguing the other side. It was appealing to me. I saw a lot of homeowners, frankly, that would just hire relatives or friends that, frankly, didn't know what they were doing in community association law. It would often end very badly for them. And I just thought there was an unmet need to represent people who are having disputes with their condominium or homeowners association. Not to push you on the spot, but I see in the legislature every year, for years, all of these bills putting more and more demands on the board of directors with regard to requirements, restrictions, controls, and some of them have some basis and some do not. Would you say all boards are bad? I would not say all boards are bad. I would say that the 90% that are bad give a bad name to the 10% who are not. No, I'm just kidding about the percentages, but there are certainly some bad boards. There are very many good boards, and obviously there are good and bad individuals in any organizations who might have eight great board members in one turkey, but that one turkey can do a lot of damage, as you know, from your own experience. For this case, you really represented the association against the developer. Would that be a fair statement? Well, we represented, we didn't work directly through any of the associations out in Evo. We worked with class representatives. It was a class action, and so those individuals acted as the representatives for their neighbors in the neighborhood. So it was a state class action, not a federal class action. It was a state class action, that's right. Okay, so if I remember correctly, I want to say in 2015, but my memory is not that good anymore, there was another judge on this case. This judge had awarded I think $27 million, and it was including punitive damages and that got set aside, that verdict. Can you bring us up to date on the history side before we get into the most current version of this? Sure, there's a very long history, but basically we had a jury trial, and the jury awarded damages under the consumer protection law that would have roughly amounted to about $7 million, as well as $20 million in punitive damages. The jury rendered that verdict, and then the court set it aside. But there were these two remaining issues that were assigned to another judge that still had to be resolved. And that's leading up to the decision that came out last week. So when that judge set aside the verdict, does it automatically go to a new judge to go back to the same judge? Not being a legal person, because who is the current judge who made this ruling? Nakasone? Judge Nakasone, yes. So what happened was the former judge's ruling is still there and in place, and either side theoretically could appeal anything that either judge has done. But like in many civil lawsuits there'll be multiple counts. So you have a count for negligence, or a count for fraud, or a count for breach of contract, what have you, in any particular case. And certain issues get tried by the jury, which is what happened in the first trial. And then certain issues are tried by the judge. And so two of these counts were tried by the judge at Judge Nakasone, and her ruling came out last week. And so the original ruling by Judge Chang, either side could appeal from that, either side can appeal from Judge Nakasone's ruling. So what was the fundamental claim? I know it had something to do with the, between the lagoon versus the marina. So kind of what was the, what caused this lawsuit? What was the dispute in general terms? Okay, well the dispute in very general terms from like the 1950s it was always envisioned that there would be a marina in West Oahu, because due to the lack of boat slips, marinas provide jobs, marinas raise property values, as you can see, marina del Rey, or lots of marina communities on the mainland, Hawaii Kai here, etc. So for decades it was in the city's plan and the various landowners' plans to build a marina. And Haseko, the defendant in this case, promised over and over again to the city, the state, the public that they would be building a marina. They called it Hawaii's Marina Resort, and had just a series of ads, business cards, radio spots, newspaper ads all touting this marina. They mentioned that they expected that America's Cup would be held there. It was going to be very high end, create lots of good local jobs so kids can learn how to work on boats, etc., etc. And that went on for decades. And then they decided to pull the plug on the marina, because they decided it would be too expensive, number one. And number two, they could make more money by leaving it as what they are calling the Lagoon. And you can go online and look at pictures of what is out there now and see if it's a Lagoon or not. But that was the primary claim was this misrepresentation and baiting thousands of people to buying out there with this idea that was going to be a marina at least comparable to Hawaii Kai versus what's out there now. Well, from my recollection the city and the state had often talked about a marina out there. Did they back off that position and allow them to do the Lagoon? So what happened to the city's vision with respect to the development? Yeah, the relationship between this developer and this city administration is I'd put it as interesting at best. And you can see campaign contributions who they're going to in the city. So in essence the city let them off the hook despite years of representations and it's frankly appalling, which is why many people it's not just the Sierra Club or people that you might consider environmentalists or those advocating for consumer rights believe that this city administration is way too cozy with developers and they are. And so they let them off the hook and said, no, even though it's in the city's plan that there should be a marina there, this land was changed. It was supposed to be agricultural land. It was agricultural land for years. Haseko got a zoning change with the city to change it from agricultural to residential on the promise that they would build the marina. Now they build the marina or they build all the homes, make all the money, then don't deliver the marina this administration let them off the hook. So just for everybody's knowledge who's watching the show the lagoon that they are going to build. When I think of a lagoon I have a hard time visiting what that is. I know they're talking about hotels and retail. Was that all part of the marina plan as well? What is the, what they did decide they want to do how does that all fit in what it really is and how is that going to make a money? Well I think that basically and there's internal documents that were produced in the case. Haseko determined that they already had the homeowners already bought in and so as closer they were building their development the closer they were getting to the what is now being called the lagoon they determined you know what we can make more money if we abandon the shopping that we were planning and if we put hotels there hotel guests aren't going to want to see a bunch of boats in the water so let's not do that we'll make it apparently something like the lagoon at the Hilton Hawaiian village tourists will like that better more people will stay in their hotels they have planned there but what Haseko's going to actually do is always a mystery because the whole case is about them saying one thing and doing another Can they turn around and go back to the marina now? That would be awfully nice but they have stated no intention of doing so and they had every opportunity to do so all the legal challenges that they offered as excuses have all been overcome they could have built the marina at any time after those last challenges were done and before then they chose not to do so so I wouldn't hold my breath Well from my experience and from a developer they usually when they plan something I mean I hope you would agree that developers may not know everything when they form a large scale development like that and they usually did they reserve their rights or anything when they did this? They say we and reality say no not to make a change of this kind so obviously if you had an ad that showed you know a swing set and then you changed it to monkey bars I don't think anyone is going to be going ballistic and suing over a change like that and also developers have every opportunity to disclose changes it's not a difficult thing to do to be honest and say look we made a change Mr. and Mrs. Homebuyer would you like to still proceed with this sale it's an easy thing to do they chose not to do it Well so what you're saying is they reserve their rights but it was in small print? They attempted to reserve their rights but they actually didn't because under Hawaii under 514b HRS 514b94 it talks about they're not supposed to make any false representations be it an ad or any other statement and here for decades they're talking about the marina, the marina, the marina it's the central feature even their business cards would say things like hawakalea which is one of the sub neighborhoods Hawaii's marina resort and there was no small print on any of that stuff and even in the sales contract they would welcome the owners to Hawaii's marina resort so that was their argument that some of their ads would have weasel words nobody has bought this unless they're on Hisakos payroll I don't know anyone that bought their argument certainly not the jury certainly not the courts. Well we're going to get into this recent verdict right after we take a short break of condo insider we'll be back in one minute. 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Welcome back to condo insider with Terry Revere talking about the $20 million plus award for the homeowners at ocean point and other properties I guess out there in a Seiko and what were the issues on that and I guess I should add is it just ocean point or is there other homes involved in this? Yeah basically it was this project before it was called ocean point and then they switched the remainder to be called hawakale it was always called the Eva Marina development project and so it's all the ocean point and hawakale neighborhoods that whole area in Eva surrounding what is now chairably being called the lagoon. So anyway you had a I guess a trial with the judge it was a judge's decision right? The second trial yes. The second trial of these issues and so what did the judge rule? Well it's about a 20 I think page very detailed very well thought out opinion but in summary the judge she looked at a couple things one thing that she looked at was the jury's verdict and the jury found that his Seiko violated the consumer protection law and the jury also found that they engage in conduct that warranted punitive damages and what the judge's main counts that she was tasked with looking at was looking at this condominium statute that you're familiar with which is HRS 514B94 which boiled down simply says for the most part developers be honest when selling people their homes because as you know the price of homes condominiums in Hawaii is enormous it is by far the biggest purchase most of us are going to make in our lives and so it's not too much to ask developers to say what you mean and mean what you say and if you change your mind then tell people so they have a choice about whether you know they still want to be part of the development or not and so that was one of the claims that the court had to look at the other one was what's called an unjust enrichment claim where if someone conveys a benefit to the defendant and it's unjust for them to retain that benefit they ought to give it back and those were the two things that the court was looking at so the $20 million you know where she came up with the number and she explains it very carefully the other side said of course as the defense almost always does the homeowners aren't entitled to anything and we argued based upon their own internal documents we believe and still believe that what Haseko gained through this was tens of millions of dollars more because what they did is they took in tens of millions of dollars from homeowners and this is their own internal accountant that is explaining this to build a marina so homeowners for years are shelling money out to Haseko to be plowed into this marina we also found internal documents showing that they determined that they would save tens of millions of dollars by not completing the marina and that the value of the land surrounding the marina for them would go up if they could flip it to time shares or hotel operators etc. who wouldn't be interested in having the marina that was there for the folks that lived in the neighborhood so in any event and where the judge came up with the $20 million is that in Haseko's own internal documents that the cost of the marina infrastructure boat launch ramps docks etc. the cost alone was $20 million that they were saving by not simply completing the project and so that was the number that the court used as her basis for saying that was the unjust enrichment that Haseko gained and with regard to the 514b what that statute basically says is if a developer makes a misrepresentation that you're not happy then you can force the developer to buy your condominium back plus attorney's fees costs and interests and she also ruled based on the jury's verdict as well as her own analysis of the facts that the evidence was overwhelming that they violated that statute. And I know the answer but I want to get this out for our viewers. From a perspective obviously there wasn't going to be a boat slip for every person out there. Some people may get value just because they live in a marina community for example but from my perspective I ask this question if I bought that house and we'll say prices have been going through the roof and my value of my house is greater now why would I want to sell it back to the developer? Well a couple things. One is the interest rate that you would be earning under the statute it could work out that for example let's say that you bought your condominium 10 years ago for 400,000. If and now let's say because of just the world economy the local and real estate economy etc. it's gone up to $500,000 which it very well may have. That doesn't equal out to the amount of interest Haseko would have to pay a homeowner if they sell the unit back because over 10 years you would be earning interest at a rate we believe of $40,000 per year. So the home that you bought at $400,000 you could cause Haseko to buy it back for $800,000 even if the fair market value is $530,000 and so that would obviously I think be attractive to a lot of homeowners that do want to get out of there and not deal with the ever traffic and being stuck with what they built out there that they're calling a lagoon. There's nothing that mandates the owner to sell it. This is an option for them. It's an option so they can either, class members can either share in their portion of the $20,000,000 Unjust Enrichment Award or they can do the buyback and each homeowner and we're going to send out formal class notes to explain all this stuff because it's all pretty new and there's a lot of legal maneuvering that we suspect Haseko will do and that we'll have to counter but we will explain to the homeowners what their options are but that's generally the option of you rescind the sale sell them Haseko back to your home, collect your interest fees etc. or share in the $20,000,000 So it's an and or thing in the sense you're either going to sell back under whatever the circumstances may be, I know your example or you're going to share in the $20,000,000 and would it be fair to say that if half of them sold their back does the $20,000,000 go down in value because there's less people? Sure, I think that the court wanted to make it fair to be able to double dip in a sense, so yeah, that's correct We're down about two or three minutes left on the show so a couple of things real quick, so if Haseko wants to appeal the decision what do they have to do? Well, they're going to have to do everything that has to be done at this level and they're also going to have to post a bond which will be interesting for them given this rescissionary rights, it's not going to be easy unless they want us to just start executing other assets which we're happy to do and then they file an appeal in the brief and try to explain how the judge made a mistake and the intermediate court or the Hawaii Supreme Court will make an ultimate ruling over who's right and who's wrong about what happened there. But a bond usually at 150% if you just take the $20,000,000 side of it, they would forget the argument of the interest in the house sales and at a minimum they'd have to put up $30 million in the bond. Correct, that's right. Is that bond like an insurance company saying we have the money insured or is it cash? With these guys I'd prefer the cash to be bonded with the court but yes, it's up to the judge as the short answer about what type of security the court is willing to allow but that's normally the two routes is either you get an insurance company that's got certain ratings that are acceptable to the court or cash is deposited. And what is the lesson to be learned out of this case? Well, I know that the show as it should be is oriented towards homeowners but I think the lesson to be learned is mostly for developers which is say what you mean and mean what you say and if you're going to make changes particularly to something as important as the marina and what you're calling Hawaii's marina resort you need to let people know that so they can make decisions and say I don't want to be a part of this anymore. And I think the lesson for consumers is yeah, developers are infamous employ legions of attorneys to write weasel words for them but the courts are here to do justice and if you've got a misleading ad that they wasn't delivered that was promised to you you've got a right to pursue that and they should talk to somebody. And one question just make sure it's clear for everybody else does that mean a person who bought their home yesterday is part of this class or they must have known it as a problem when they bought right? Yeah, if a person bought in yesterday they would probably be out of luck at least on this marina issue the cutoff date for the class was folks that bought in before Haseko made their public announcement. Well okay, I want to thank Terry for being on Kondo Insider. This has been very enlightening and I would have to say I can't agree with him more about the need for accurate, honest and full disclosure and transparency not only for developers but for boards of directors and anyone with regard to their business dealings and so thank you for bringing us up to date on this case. I want to thank all of you for watching Kondo Insider and we'll be back next week, Thursday at 3 o'clock. Aloha.